The use of subcontractors from Eastern Europe (Poland, Czech Republic, Slovakia, Hungary, Croatia, etc.) in Germany can offer many advantages for companies. They can save costs and access skilled labour that may not be available in Germany. However, companies should also bear in mind the liability risks associated with using Eastern European subcontractors. In this article, we will look at the potential liability risks and tips for minimising these risks.
Understanding these risks is critical for organisations to navigate the legal landscape and avoid potential pitfalls. We will explore the legal implications, responsibilities and best practices for mitigating risk in depth. Whether you are a contractor, project manager or legal professional, this guide will provide valuable insight into managing international subcontractor relationships.
What are subcontractors and what significance do they have?
Subcontractors are companies commissioned by a main contractor. They provide specific tasks or services as part of a larger project.
Subcontracting is an essential aspect of modern business operations. It enables companies to access specialised skills, reduce costs and increase efficiency.
What are the risks of using subcontractors from Poland, the Czech Republic, Slovakia and Eastern Europe?
Here we list some of the risks that could arise when using subcontractors from abroad:
- Labour law problems: When subcontractors from Eastern Europe are used, companies must ensure that labour law regulations are complied with. This includes minimum wages, working hours and social security contributions.
- Sanction risks: Non-compliance with regulations leads to sanctions by German authorities. For example, if a subcontractor violates minimum wage regulations, this leads to fines or even criminal prosecution.
- Liability risks: Companies can be held liable if a subcontractor commits labour law or safety violations. Companies are liable under either civil or criminal law if they do not act with due care.
- Reputational risks: Breaches by subcontractors also damage a company's reputation. Bad press or negative reviews on social media have a long-term impact on business.
- Insurance cover: It is possible that the German company's insurance policies are not tailored to the cooperation with foreign subcontractors. This can lead to gaps in the insurance cover.
Companies should keep an eye on these risks and take appropriate measures to avoid possible consequences.
Rising number of foreign subcontractors in Germany
The number of foreign subcontractors in Germany has risen in recent years. According to a study by the German Chamber of Industry and Commerce (DIHK), 27 % of companies in Germany regularly use subcontractors from abroad. The sector that does this most frequently is the construction industry, followed by the IT sector and transport.
A study by the Federal Institute for Occupational Safety and Health (BAuA) has shown that violations of labour and health protection laws occur more frequently with foreign subcontractors than with domestic companies. This emphasises the need for careful monitoring and coordination.
Contract design and clear agreements
Clear contracts and agreements are essential in subcontracting. They define the conditions of the subcontractor relationship. These include the scope of services, payment terms and dispute resolution mechanisms. Contracts also define the responsibilities and liabilities of each party. They play an important role in managing liability risks.
More on the key contractual components: Essential clauses in the subcontractor contract and Service contract vs. contract for work and labour - differences and risks.
Minimisation of liability risks
- Check contracts carefully: Companies must thoroughly scrutinise contracts with foreign subcontractors. Clear agreements on working conditions, safety standards and liability issues are essential.
- Regular monitoring: The activities of subcontractors must be regularly reviewed to ensure that they comply with German regulations.
- Education and training: Employees must be trained to recognise and minimise potential risks.
- Check insurance cover: Companies should ensure that their insurance policies cover co-operation with foreign subcontractors.
- Compliance programmes: Implement a comprehensive compliance programme to ensure that all subcontractors comply with German laws and regulations.
Language and cultural barriers
Language and cultural barriers pose challenges in international subcontracting. A lack of language skills can lead to misunderstandings and disputes. Cultural differences can also affect business practices and expectations. It is therefore important to address these barriers proactively.
Global Business Recruiting ensures that all employees and subcontractors placed have sufficient knowledge of German and are familiar with German labour standards - a decisive advantage over an uncoordinated in-house search.
Insurance options to minimise risk
Insurance helps to minimise risks in subcontracting. Different types of insurance cover various risks associated with subcontractors. Liability insurance can cover damages caused by the subcontractor's negligence. Therefore, insurance should be considered as part of a comprehensive risk management strategy.
Make sure that your subcontractor can provide proof of at least the following insurances: Public liability, professional liability (depending on the trade) and - in the case of construction projects - construction performance insurance.
Tax and legal compliance
Tax and regulatory compliance is crucial when working with foreign subcontractors. German companies must comply with national and international tax laws. Non-compliance can lead to penalties and legal problems. It is therefore important to understand and comply with the relevant tax laws.
Particularly relevant: liability in accordance with § 48 EStG (tax deduction for construction services) - clients are liable for the payment of construction withholding tax if the subcontractor does not submit an exemption certificate. Always request this before placing an order.
Professional support when working with subcontractors from abroad
The use of subcontractors from Eastern Europe in Germany can be advantageous, but also harbours risks. Companies should keep an eye on the liability risks and take proactive measures to minimise these risks. Through careful contracts, regular monitoring and training, companies can successfully and safely organise their collaboration with foreign subcontractors.
Global Business Recruiting offers comprehensive support in the placement and secondment of subcontractors from abroad. With many years of experience and expert knowledge, we ensure that the collaboration is safe and successful. Companies can rely on our services to minimise liability risks and build a successful partnership with foreign subcontractors.
Frequently asked questions about liability risks when using Eastern European subcontractors
Yes, according to Section 13 MiLoG, clients are liable as guarantors for the minimum wage obligations of their subcontractors - and also for other subcontractor chains below them. This means that if your subcontractor pays its employees too little, they can claim the outstanding amount directly from you. You should therefore ask for regular wage statements.
As an employer, the subcontractor is generally responsible for the occupational health and safety and accident prevention of its employees. As the client, however, you may be jointly responsible if you have violated your coordination obligations in accordance with Section 8 of the German Occupational Health and Safety Act (ArbSchG) or if the cause of the accident lies within the scope of your organisational responsibility. Clear contractual regulations and public liability insurance for the subcontractor are essential.
In the case of construction services, you as the client must check whether the subcontractor has a certificate of exemption in accordance with Section 48 EStG. If this is missing, you are obliged to withhold 15 % of the invoice amount and pay it to the tax office. In addition, the foreign subcontractor may be subject to limited tax liability in Germany.
The most effective protection is careful pre-selection: Check references, request all proof of compliance before placing an order and carry out regular checks. You should also make use of contractual provisions such as contractual penalties for breaches and cancellation rights. Working with experienced recruitment agencies such as Global Business Recruiting significantly reduces the risk.
Yes - as long as the subcontractor is in fact providing temporary workers (i.e. does not owe a result under a contract for work and services, but provides labour). If the AÜG licence is missing, there is a risk of heavy fines and the employment relationship is deemed to be established with you by law. Find out more: Temporary employment vs. subcontracting.
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